Frequently the commentary on our website will analyze the musings of various investment luminaries. Recently, Howard Marks, co-founder of Oaktree Capital Management, penned a memo, which gained attention on a number of investment websites and TV shows. One train of thought he pursued included the passive investing versus active investing debate. He said, “Passive portfolios have outperformed active investing over the last decade or so.”

That particular statement and train of thought misrepresents what has actually occurred. It is the S&P 500 that has outperformed a lot of active investing over the last nine and half years. A Sample ETF Portfolio consisting of 50% SPY (S&P 500), 30% VEU (World ex-US), and 20% IWM (small cap) underperformed the S&P 500 by 30 percentage points over the same time period.

We would suggest that the passive investing industry has received a huge boost following the financial crisis as a result of the S&P 500 performing so well. In our view, the S&P 500 neither represents a “passive investment portfolio” nor “the market.” We would suggest that any active portfolio that has beaten the S&P 500 or tracked it closely has in fact far outperformed a representative passive investment portfolio over the time period in question.